20140529 Aspects of Software Licensing_Pearse Ryan

Irish Software Innovation Network

Aspects of Software Licensing

29/05/2014

Pearse Ryan

Arthur Cox

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Overview:

• What is Software (from a legal perspective)?

• Recent developments in the law’s view of Software

• Software as “Goods” - Implications

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What is Software (from a legal perspective)?

• A creature of: – Intellectual Property Law (mainly copyright) – Contract (mainly licensing)

• Conflict between IP law and EU Competition law – IP rights – protect creator/right holders and use without consent =

infringement of IPR – Competition law – fundamental freedoms – Longstanding conflict between the two played out in CJEU (ECJ)

decisions – Court reluctant to allow IPR stifle competition

• Underlying question: – Software is a creature of IP law – But with reference to “sales” law – is it a good or a service? – The good/service distinction is key

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What is Software (from a legal perspective)?

• Goods v Services – Sale of Goods legislation distinction

• Software licence v sale • Software licence to Business (B2B) v Consumer

(B2C) • The distinction between above has played out

over time • Current position

– Courts evolving towards software as good – Brings with it application of EU law on sale of

goods

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Recent Developments in Laws View of Software

UsedSoft v Oracle (CJEU-2011) • German case – referred to CJEU • Copyright v Competition law Q • Overall – in circumstances of rightholder grant of perpetual

licence in downloaded software cannot use copyright to prevent licence redistribution onwards to third party

• Effectively licensee as reseller - secondary market in used software

• Oracle sued UsedSoft in German – facilitated licensee resale of software – market/forum

• The previous position - Holders of copyright in computer programs can prevent licencees from redistributing/reselling – software licence is personal and breach of copyright/breach of contract to reproduct in this way

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• BUT – exceptions under 2009 Software Directive: – c/r owner cannot prevent redistribution of s/w “sold” within EU –

principle of exhaustion of rights – “lawful acquirer” of a program does not require rightholder permission to

reproduce c/p when technically necessary to run the c/p as intended (e.g. load and run)

• Oracle s/w licences were personal and non-transferable • Oracle sued UsedSoft for c/r infringement – UsedSoft argued Oracle

rights exhausted – referred to CJEU • Q: is copy of c/p ‘sold’ when free download accompanied by a

permanent licence for a fee and Q can c/r holder prevent redistribution

• Held: downloaded s/w is ‘sold’ when terms of download i.e. the licence agreement is “… intended to make the copy usable by the customer, permanently, in return for payment of a fee designed to enable the copyright holder to obtain renumeration corresponding to the economic value of the copy of the work of which it is the proprietor” – this is the language of sale of goods rather than IP

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SAS Institute Inc v World Programming Inc (CJEU-2012)

• Overall Q: status of functionality in computer program – allegations of wp copying of SAS s/w

• Facts: SAS developed enterprise type c/p in proprietary language (the SAS System) - based on Base SAS, which allows user write and run own programs within overall SAS System – proprietary language ties in customers and difficult to migrate away – WP developed rival system (the WPL System) which mimics SAS System – allowed users use Base SAS programs within the WPL System rather than SAS System without need to rewrite all programs in non SAS language

• SAS alleged copyright infringement – UK HC referred to CJEU • Accepted that WPL studied SAS s/w in creating WPL System but

no proof of access to SAS source code – study of a properly licenced copy of s/w

• Q: breach of c/r in copying functionality based on independent study and not copying source code or object code?

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• SAS argued – copyright breach/breach of licence in misuse of licenced

s/w – use outside scope of licence grant • Q referred to CJEU:

– Are functionality of c/p, the programming language and format of data files all forms of expression and protected by copyright?

– Can licensee observe/study/test licenced s/w to determine underlying ideas/principles?

– Is reproduction in c/p x y2 of functionality described in user manual for c/p ABC a breach of c/r in user manual?

• Held: source code and object code = expression of c/p – Functionality, programming language and data file format not forms of

expression protected by c/r. Wish is to avoid monopoly on ideas – Overall: so long as no copying of existing c/r expression can create

similar c/p – copying of source code or object code is c/r infringement – court did allow for protection by c/r of languages and data file formats where authors own intellectual creation – but high standard

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• Licensor – cannot prevent licensee from observing, studying and testing functionality of c/p – but licence cannot copy the object code/source code

• Decision – no protection over functionality and promotes competition

• For Licensors – literal copying of code not allowed and manuals/related materials can have c/r protection where themselves sufficiently unique (intellectual creation)

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Software as “Goods” - Implications

• Overall – case law moving towards recognising software as potentially goods

• Evolving area but trend emerging

• Legal Implications: – Traditionally IT industry view that s/w not goods

and licence contracts drafted on this basis;

– Sales Law • Goods attract higher requirements burden than only

other recognised class of supply – “Services”

• Applicable law – SOGSAS

– case law

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Software as “Goods” - Implications

• Agency Law

– risk of application of commercial agency regime to sales channel

» What is commercial agency

» What is scope of risk?

• Overall – status of software is evolving/changing towards categorisation as “good” rather than service and licensors need to be aware

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[email protected]

Thank you for your time today.

29/05/2014

20140529 Aspects of Software Licensing_Pearse Ryan

Technology

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